The Outlook (And Some Solutions) For Nonprofits

“Where’s the light at the end of the tunnel?” This was the key question for panelists at a recent Center on Nonprofits and Philanthropy (CNP) event held to explore what’s ahead for this sector.  Marking its 15th anniversary, CNP asked nonprofit leaders and thinkers to give their take on the “new normal” – limited funding, increased demand, and intensified scrutiny.

The outlook for nonprofits is daunting, according to Stephen Bennett, president and CEO of United Cerebral Palsy:

I’m not sure there’s an end to the tunnel. I think things are totally different, and I’m not sure I’m looking for light at the end of the tunnel anymore. It’s kind of a wasted exercise for me. We have to do things very differently, I think, in going forward.

Bennett’s view is understandable. The Great Recession and lingering economic torpor strain nonprofits while government funding is down and private giving remains static. Nonprofits make do with less while demand from Americans with nowhere else to turn grows. Talk in Washington about reforming the tax code and charitable deductions and revisiting nonprofit tax-exempt status heightens nonprofits’ anxiety.

Yet, nonprofit experts and leaders convened by CNP at this and other anniversary events offered some solutions for getting through today’s dark tunnel.

Be strategic about limited resources.  Obvious? Maybe, but nonprofit executives and boards need to weigh both the short term and long term costs of cuts. Letting go of staff or drawing down reserves might bridge current gaps, for instance, but can also undermine capacity and viability.

Collaborate and partner. Nonprofits have long worked together to help the individuals and families they serve. Besides sharing resources and expertise with each other, nonprofits can partner with the wider community to address systemic issues. Nonprofit housing assistance agencies in the Washington, D.C. metro area, for instance, can collaborate with school districts to minimize the impact of the foreclosure crisis on children moving homes and switching schools.

Identify and reward best and promising practices.  Private and public funding has to be maximized and channeled to programs proven to get results. Mario Merino, co-founder and chairman of Venture Philanthropy Partners, urges nonprofits to “manage to outcomes.” That means using information to guide decisions and operations, which leads to measurable and meaningful impacts.  That said, nonprofits need financial support to gather information and measure outcomes.

Innovate. Marta Urquilla, senior policy adviser at the White House Office of Social Innovation and Civic Participation, says that “when we talk about innovation in this context, we’re not talking about novelty. We’re talking about the innovation that comes from the relentless pursuit of results.” Funders must resist funding “the latest thing” for two to three years and then chasing the next big idea. They should see a new initiative through since false starts and glitches can bedevil even very viable programs.

Advocate, especially at the state and local level. The political climate in Washington means that there’s little or no pay off in trying to get Congress and the administration to act on behalf of nonprofits. Julie Rogers, president and CEO of the Eugene and Agnes E. Meyer Foundation, cites the Think Twice Before You Slice Campaign in the Washington, D.C. metro area as an example of an initiative that has convinced local and state governments to preserve funding for nonprofits (in this case, more than $45 million) by showing the contributions nonprofit make in their communities.

Educate the public. Bennett believes that the general public isn’t aware of the extent of nonprofits’ contributions and challenges because nonprofits are resilient and usually don’t turn anyone needy away. Educating people, many of whom benefit from nonprofits, can get them to support nonprofits more.

Harness technology and the internet. Joining the digital revolution can be a low- cost and effective way to reach out to the public, raise funds, and train practitioners.

Nonprofits may be stuck in the tunnel for now, but there are ways out of the dark.

Originally posted on Urban Institute MetroTrends Blog, October 21, 2011.

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Doing it for the Love of It! Who Needs a Paycheck?

June 30, 2011; Source: Lincoln News Messenger | Times remain tough for the sector. State and local governments continue to trim budgets, cutting services delivered in tandem with nonprofits. Private giving is slowly recovering but GivingUSA notes that donations to human service organizations saw a slight decline in 2010.

Nonprofits have had to improvise to weather the financial crisis. Some are keeping afloat by forgoing salaries to their executives or by compensating their managers at the barest minimum.

The Friends of the Lincoln Library and the Lincoln Area Archives Museum in California for instance were purposely set-up to be all-volunteer operations. And the Police Activities League (PAL) pays its sole employee only a little over twice the minimum wage to run its youth center for a mere 12 hours per week.

Despite the modest compensation the center director gets, Steve Krueger, PAL’s executive director still feels the need to justify what they were paying the center director, arguing that “given the large amount of responsibility, importance and influence on our youth the director has, the money is clearly well-spent.”

If the director’s position is so pivotal, why pay him only so much and have him work part-time? Krueger’s apologetics inadvertently perpetuates the belief that nonprofit workers are in it not for the money but for the profound satisfaction they get from working in nonprofits. And that they are passionate about the cause and committed to the job, regardless of remuneration.

In part as a result of this thinking, managers in the sector earn 18 percent less than their counterparts in the private sector, according to the Bureau of Labor Statistics.

Keeping costs down is to be expected and commended during these lean times. But is under compensating nonprofit workers the right way to go? Are they worth less than private sector workers? And should nonprofit leaders be the ones perpetuating this unhelpful meme?

Originally posted on the Nonprofit Newswire, July 5, 2011.

The Frayed Safety Net: Strained State and Nonprofit Budgets

A friend recently emailed me asking for help. She had lost her job and, despite her vast professional experience, has been having a hard time finding work and now stands to lose her home. Unfortunately, her situation is far from unique.

The economy may officially be on the mend, but millions of Americans remain unemployed. The latest report from the Bureau of Labor Statistics pegs the unemployment rate at 9 percent. This rate is higher for teenagers (24.9 percent), African Americans (16.1 percent), and Latinos (11.8 percent).

Unemployed individuals and their families rely on the social safety net held together by governments and nonprofits during hard times. Governments enlist human service organizations to provide employment, housing, food and other essential programs that keep people afloat.

But state governments are facing budget gaps that result in less funding for nonprofits.  For fiscal year 2012, which begins July 1 in most states, 44 states and the District of Columbia project shortfalls amounting to $112 billion. For FY 2013, 26 states are already projecting deficits totaling $75 billion. This bleak outlook is worsened by the fact that nonprofits have already been struggling with government contracting glitches and payment problems and making do with declining revenues.

It is particularly dire for nonprofits in states with the largest budget shortfalls in the nation. In Arizona, government contracting is widespread, with human service nonprofits averaging six contracts each.  In Illinois, nine out of ten nonprofits have contracts with the state, which has been late in paying its subcontractors. Four in ten nonprofits in Maine, New Jersey and Nevada are in the throes of budget deficits.

Nonprofits’ predicament doesn’t auger well for my friend and the millions of others who are out of work. The safety net they need now more than ever is frayed and there’s no recovery in sight.

Originally posted on Urban Institute’s MetroTrends Blog, May 13, 2011.

Where’s the Slack to Tax in Community Nonprofits

US cities and other municipalities struggling with budget deficits are desperately seeking more funds and new sources of revenue. And they are beginning to eye neighborhood nonprofits.

The property tax exemption enjoyed by charitable organizations costs local governments anywhere between $8 and $13 billion a year. Elected officials now say that it’s about time these nonprofits pay their fair share, seeing as how they don’t pay taxes on valuable real estate. One revenue raising option is PILOTs– or payments in lieu of taxes.

PILOT Contributions as Percentage of Total Municipal Revenue

PILOT revenue as percent of budget

PILOTS aren’t new.  By Lincoln Institute of Land Policy calculations, PILOTs have been already used in at least 117 municipalities in 18 states over the last decade. But a spate of PILOT initiatives have cropped up over the past year. Last fall, Worcester, Massachusetts negotiated agreements with area colleges. Clark University signed on to pay the city $6.7 million over 20 years. Last January, the Scranton School District asked local nonprofit organizations to make voluntary financial contributions after the mayor and city council tried the more formal PILOTs route. Last April, Boston asked 40 major nonprofits – hospitals, universities, and cultural centers – to pay up to 25 percent of what they would owe if their properties were not tax-exempt.

Although PILOTS generally target larger nonprofits, especially “eds and meds,” some executives and legislators are looking to expand PILOTS to all nonprofits in addition to universities, colleges, and medical centers. In Boston, for instance, the task force that recommended the city’s revenue-raising plan initially recommended applying the PILOT program to all nonprofit groups with properties worth $15 million or more.

Taking  PILOTs this far into nonprofit territory opens flood gates  that  will drain the coffers of smaller, community-based organizations – roughly 75 percent of all charities – that are struggling themselves now in the Great Recession’s wake and lack the capacity and resources of larger nonprofits.

Last month, the town manager of Palmer, Massachusetts, goaded by budget shortfalls and Boston’s lead, asked 25 nonprofits, including churches and a youth summer camp, to make annual payments.

What will happen to nonprofits like these that serve the unemployed, homeless, poor, and hungry  and run on very tight margins themselves? Payments in exchange for their tax-exempt status will likely put some over the edge. In 2009, half of human service nonprofits froze or cut employee salaries while four out of five drew on scant reserves. Another 21 percent opted to reduce programs and services.  So where’s the slack to tax?

The head of an association of community-based health and human services pretty much said it all at recent discussion on PILOTs. “Which of our clients should we stop serving? Which of your taxpayers do you want us to fire?”

Originally posted on Urban Institute’s MetroTrends Blog, June 15, 2011. Re-posted on the Nonprofit Quarterly, July 5, 2011.